Cares Act PPP: Clarity on Federal Taxes, 1099 Contractors & Benefits, But Questions Still Remain

 On Monday night, the US Treasury issued an FAQ concerning the Paycheck Protection Program of the CARES Act. The following is now clarified for participating organizations:  

1. Federal Taxes:
These taxes, along with State and Local taxes, should be included in the calculation of Payroll Costs. Simply take gross wages for determining payroll costs. Do not include the Employer’s part of the Federal Taxes that are added above gross wages and sent to IRS.  

2. 1099 Contractors: No 1099 contractors should be included in payroll costs for a borrow. All 1099 independent contractors or sole proprietors should apply separately for their own PPP loan.  

3. Organization Size: Until today, the only determination we had for the size of an organization was under 500 employees. However, now an organization must meet a couple of new standards if the organization is over 500 employees. Organizations must meet these tests: 

    • Meets the standard size guidelines provided by the SBA for employee-based or revenue-based for corresponding to its primary industry at  

    • Maximum tangible net worth of not more than $15M

    • Average net income after Federal income taxes (excluding carry-over losses) of the business for two full fiscal years before the date of the application is not more than $5M

4. $100,000 limit on employee salary/wages does not include benefits, sick leave, vacation, or other allowances.  

5. PEO: If your organization uses a PEO (Professional Employer Organization), you are still able to claim employee wages and benefits on your payroll costs.  

6. Time Period for determining Payroll Costs: 

      • Average monthly payroll costs for calendar year 2019, Or

      • Average monthly payroll costs for previous 12 months, 

      • Seasonal businesses - February 15, 2020 or March 1, 2020 to June 30, 2020

      • If Borrower was not in business for all of 2019, then average monthly payroll for January 1, 2020 to February 29, 2020.  

7. Clarification: If you applied for PPP prior to knowing these clarifications, then you do not need to resubmit. However, if your loan has not been processed, you may revise your application based on these clarifications.  

While these clarifying points above are helpful, the following questions still remain:

8. Housing Allowance: Are these costs included for churches since these costs are included in employee’s gross wages? Vanderbloemen is seeing many churches who apply for PPP including these costs within their PPP payroll costs, and lenders are generally approving this amount. Until now, there is no clear guidance from SBA or Treasury.  

9. Time to loan to participate in forgiveness: There is also confusion around the time frame that the loan needs to be used to qualify for forgiveness. There are two different interpretations for the time period:   

    • 8 weeks from the time the loan payment is given (communication from Treasury)

    • Period of Feb. 15, 2020 to June 30, 2020 (per wording in the CARES Act)

Finally, many organizations struggle to find a lender who will process their PPP loan application.  Many lenders are only processing loans from existing customers who have current debt with the lender or lenders are not participating in the PPP program. Additional lenders need to be available to more people throughout the country. 

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